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Ozier v. Central Ill. Public Ser. Co.

MAY 16, 1973.




APPEAL from the Circuit Court of Champaign County; the Hon. FREDERICK S. GREEN, Judge, presiding.


Rehearing denied June 21, 1973.

Plaintiffs appeal from a judgment in favor of defendant upon a complaint claiming $600,000 to be due upon a contract to acquire certain oil, gas and gas storage rights owned or to be acquired by plaintiffs. It is admitted that plaintiffs performed certain contractual obligations to acquire leases and show merchantable title to such, but defendant alleges a right to terminate the contract by reason of inability to establish an adequate gas storage reservoir. The defendant cross-appeals from the order of the trial court dismissing for want of equity its counter-claim for rescission of the contract by reason of alleged misrepresentation and mutual mistake.

The contract, dated May 2, 1966, with two amendments, dated November 17, 1967 and May 31, 1968, involve some 36 pages of legal cap with elaborate provisions conditioning each undertaking, and repeated cross-references to such conditions. Notwithstanding such length, the parties disagree as to the fundamental terms of the contract and whether the parties contemplated the requirement of approval by the Illinois Commerce Commission for purposes of gas storage and any condemnation incident to such use.

While the agreement provided for the exchange of shares of stock in defendant company for all of the shares of stock in the Fishhook Gas Corporation owned by plaintiffs, the actual subject matter was the sale and purchase of 27 leases upon identified parcels of land containing approximately 4400 acres, and known as the "Fishhook Gas Field". In Sections 3 and 4 of the agreement, plaintiffs agreed to obtain, at their own expense, appropriately executed documents entitled "Easement to Conduct Exploratory Operations, Options for Gas Storage Grant, Oil and Gas Lease" within 18 months, together with abstract showing merchantable title in the grantors and to furnish such for examination by defendant. Such instruments, called leases, differed in content from the standard or usual oil and gas lease then held by plaintiffs. It was further agreed that such easements and options were to cover oil, gas rights in 85 per cent of the acreage and gas storage rights in 90 per cent of such.

Section 5 provided for escrow of all stock in "Fishhook" together with the sum of $100,000 deposited by defendant. While the contract speaks in dollar sums, it is specified that defendant was to transfer its stock as valued in dollars.

Section 6 provided that within sixty days of compliance with Sections 3, 4 and 5 of the agreement, defendant should direct the escrow agent to pay the sum of $100,000 to plaintiffs, and that at the same time defendant should tender or pay the sum of $500,000. This Section also provided that upon tender of $500,000, defendant would have the right to withdraw all gas and hydrocarbons in the Fishhook Field without payment of compensation whether or not defendant exercises its rights under Section 7 of the contract. The latter Section of the contract gives defendant the right, following the plaintiffs' performance of Sections 3, 4 and 5 at its option either to pay an additional $400,000 or to reassign all oil, gas and gas storage rights acquired from plaintiffs.

Section 17 is, in part:

"It is understood that the acquisition by Central of the stock of Fishhook, the liquidation of Fishhook and the acquisition of its assets and rights by Central and other transactions contemplated by this agreement are or may be subject to the approval of such regulatory authority or authorities as may have jurisdiction with respect thereto. Central agrees, at its expense, to endeavor to obtain all requisite approvals or authorizations of such transactions by such regulatory authorities as counsel may advise; * * * all orders of regulatory authorities obtained pursuant hereto shall be such as to enable Central legally to carry out the transactions herein contemplated, including the liquidation of Fishhook and the acquisition of its assets by Central and such orders shall not be subject to any condition or conditions compliance with which would be unduly burdensome or materially disadvantageous to Central; and in the event such orders or any of them are not obtained or, if obtained, are subject to any such condition or conditions, Central may terminate this agreement without liability to the stockholders; * * *"

A document dated May 31, 1968, designated Amendment No. 2 to the agreement, refers to Section 17 of the contract and states that responsive to the requirement that Central endeavor to obtain all requisite approvals of regulatory bodies as counsel may advise, Central has employed James A. Lewis Engineering, Inc., a Texas corporation, to supplement the existing geologic map and to obtain additional evidence to present to the Illinois Commerce Commission to enable it to grant a Certificate of Convenience and Necessity, an order authorizing condemnation if necessary and an approval of the storage area known as "said Field" in the agreement. The document provides for drilling designated wells to the St. Peter stratum. By such document Central paid the consideration of $2071.20 to plaintiffs' agent for renewal payments on the leases affected.

The evidence established the execution of the contract, the acquisition of the leases and performance of other undertakings of the contract in Sections 3, 4 and 5, which plaintiffs were required to perform, the fact that plaintiffs did not receive any part of the $600,000 provided in Section 6 of the contract, the fact that defendant did not exercise the option under Section 7 of the contract and the fact that in July of 1968 defendant advised plaintiffs that defendant would not complete the contract. On October 4, 1968, defendant wrote plaintiffs that:

"[S]ince it would be impossible in the circumstances for it to obtain the requisite approval of the Illinois Commerce Commission to enable the Company to legally carry out the transactions contemplated by the Exchange Agreement, as amended, the Company regards the said agreement as terminated and hereby formally terminates it, as well as the Escrow Agreement, in accordance with the respective terms of the said documents."

The agreement does not specify to what depth or in what strata the gas storage is contemplated. The trial court prepared a memorandum filed with the record which finds that the agreement contemplated the use of the St. Peter formation for storage of gas; that to obtain approval to condemn defendant would be required to present a verified petition to the Illinois Commerce Commission to obtain a Certificate of Convenience and Necessity; that the evidence predominates that a satisfactory storage area does not exist in the St. Peter formation and that it is doubtful that defendant could, in good faith, file a petition to obtain authority to condemn and that they should not be required to do a useless thing. (See Nelson v. American Business Bureau, 241 Ill. App. 432.) The court further found in essence that the contract was for the sale of interests in a gas storage area; that upon the payment of $600,000 under Section 6 it was expected that defendant would pump gas from the Silurian level into the St. Peter formation to test the capacity of the latter to store gas, and that if gas was properly contained in the St. Peter formation, defendant would then pay an additional $400,000 in exercise of its option. The court further found the substantial payment of $600,000 was essentially computed upon the gas situated in the Silurian strata which it was contemplated would be injected into the St. Peter formation as a test of its capacity before defendant made an election under Section 7. The court further found that defendant's notice of termination was timely under the terms of Section 17 of the agreement.

Plaintiffs' contention here is essentially that the agreement is divisible and that upon the tender of the leases by plaintiffs, defendant was required to pay the sum of $600,000 ...

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